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Trading without stop loss: Why Professional Traders Never Use Stop Losses Decoding Markets


However, this time the opposite position needs to be bigger than the first one. Like with locks, you can open a trade manually or use pending orders. For the most part, this method is used for trading support/resistance levels. If the price breaks a support/resistance level, there is a high chance that the price will continue to move against your first trade. The profits from your second position can cover the losses from your first trade.

Placing stop loss orders is an absolute must in most cases. Well, basically a currency option represents a contract, which gives its buyer a right to buy or sell a specific currency at the predetermined exchange rate. The data or duration at which the option can be exercised is also written in the agreement. Finally, from January until the present day, EUR/USD and EUR/JPY are once more taking part in the downward trend. The Euro fell against the Dollar from the January high of 1.12 to 1.08 by the end of April. The exchange rate of the single currency also declined in relation to the Japanese Yen, from 122 level to near 116 mark during the same period.

What’s the Statistic on Successful Forex Traders

This is particularly prevalent with certain types of trading such as spread trading, stat arbitrage or high frequency trading. Many traders I have met are stubborn and reluctant to take even a small loss on a trade if they think their opinion is correct. I have come across traders who are so confident in their opinions that they do not think a stop loss is necessary.

The level where you originally placed your Stop Loss may be obsolete after a few hours, and a reevaluation makes total sense. Using no Stop Loss Trading methods can undoubtedly be risky. One area all traders struggle with is determining where to place their stop loss. Fiddling with a Stop Loss can be a sign that you are on a slippery slope to Margin Call or worst, Stop Out. Last week we published an article on Edgewonk.com about the 4 reasons why trading without a stop loss will keep you from making improvements.


Finally, placing a stop-loss order does not always guarantee that the trade will be close to that specified price. If there is a high volatility in the market, or liquidity has dried up, the trade will be executed at the next best price to the stop loss order. Besides those potential problems mentioned above, there are various other reasons why traders might prefer trading Forex without a stop-loss strategy. Most of you are familiar with using a stop loss at a predetermined level, where if the price hits that price level, you’ll exit the trade. A time stop works differently in the sense that you only exit the trade if a certain amount of time has passed. Let’s say in future, Coke’s share price goes up in to $20 and Pepsi’s share price goes up to $16.

How to Trade Without Stop Losses

It would never be responsible for anyone to advise Forex traders not to use a Stop Loss. The best advice you can take away from this article is that you should reevaluate how you are deciding where to place your stop losses. Professional traders most likely are using Stop Losses in their strategies, but not in the same way as an average trader would.

Now the price differential is $5, instead of the historical $4 price differential that was constant over the years. If the price is moving against your open trade, you need to open a second trade in the same direction but at a better price. As a result, even with a minor price correction, you’ll be able to break even on your overall position. In this case a trader may be quite relaxed about a loss on one trade, where it’s compensated for by a profit on another.

Joe Marwood is not a registered investment advisor and nothing on this site is to be regarded as personalized investment advice. The major economic releases are usually accompanied by very high volatility. A profit order specifies the price at which the trade will be automatically closed for a profit. There are many professional full-time traders who place both stop-loss and take profit orders when they open their positions. It’s not uncommon that traders use the Martingale method to average into a position. According to the Martingale strategy, you need to increase your position size progressively.


The difference between the two determines the profit – but once both trades are in place the profit or loss is locked at that amount. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. There is a strange phenomenon in the online trading world whereby prices seem to gravitate towards wherever Stop Losses are clustered.


Further along the curve, for a 2% chance of stop-out, the stop needs to increase to 142 pips. Then if you want to reduce that to a 1% chance, the stop has to increase to 215 pips. That’s a step of 73-pips for just a 1% reduction in the chance of the stop being reached. The natural reaction when traders try to reduce the numbers of stopped-out trades is to widen their stop losses. Professionals do trade Forex profitably without Stop Loss orders. Still, they can only do that if they are constantly monitoring their account or have a significant amount of available margin to be able to sustain this strategy.

In the third stage, both of those currency pairs recovered and rallied from the middle of Autumn 2019 until the end of that year. As we can see from the above, EUR/USD and USD/JPY can be quite closely correlated. Obviously here we are not dealing with a perfect 100% correlation, however, they are mostly moving in the same directions. He is the most followed trader in Singapore with more than 100,000 traders reading his blog every month… You can see that if you were to buy call options or put options, the worst that can happen to you is that the option that you have bought will expire worthless. So what you can do is to buy Pepsi shares and also sell Coca Cola shares because you would expect this price difference to converge to $4 in the near future.

A professional trader objective is actually not to allow their Stop Losses to be triggered but to decide for themselves if their trade is invalid and close it themselves. Go on any website, trading forum or listen to traders talk on social media and eventually the conversation drifts towards trading without a stop loss. Amateur traders see their stop as the thing that works against them and so they try to come up with reasons why trading without a stop loss will make them better traders. For example, instead of one large position at a 20% position size, a trader could initiate 10 individual positions at 2% position size. The level of exposure is the same but each position is smaller allowing the stop loss to be moved further away. Trading a conservative size is the approach we usually take with the strategies on our program, although experienced traders can add leverage if they wish.

Since stops are inactive until the stop can be converted to a market order, the stop can be “blown through” when the instrument gaps. Your stop order will be filled at the prevailing post-gap price. Granted, you can use Put Options for CYA, but that requires a different set of skills. The advantage of this is that you don’t have to ‘give away’ where your stop loss is by placing it in the market.

Stop losses might be the right choice for some strategies but not others. It isn’t a given to use stops because there are alternative and often more precise ways of managing risks. In a worst case scenario if your positions go south the options will pay out and protect against the downside. Carry trading has the potential to generate cash flow over the long term. This ebook explains step by step how to create your own carry trading strategy. It explains the basics to advanced concepts such as hedging and arbitrage.

One of the main reasons professional traders don’t use hard stop losses is because they use mental stops instead. What’s more, once the SL orders are placed, it’s recommended not to move them. It’s important to keep in mind that the power of being in an active position can influence the decision-making process. Stop Loss orders protect the trading account from blowing up.

Essentially, a trader can open a long EUR/USD and short EUR/JPY position at the same time. On the other hand, a trader might have several reasons for not using Stop-Loss orders. So essentially, the stop-loss order kicks in and closes the trade before it has a chance to become profitable and let traders earn their payout. Pipbear.com is a blog website dedicated to financial markets and online trading.

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